6 Rules For Managing Your Contractors

In my opinion, the most difficult aspect of being a first-time house flipper is managing your contractors. Perhaps it’s because I came into this business with no construction experience, or perhaps I’m just not a terrific “people person,” but regardless, on my early flips, ensuring that my contractors performed to expectation was by-far the most frustrating part of the job.

Luckily, since I started this business, I have built up a very reliable, and very trustworthy crew, but every once in a while, I still need to hire contractors who I’ve never worked with before, and therefore run the risk of having them cause difficulties on my projects. With that in mind, even the most experienced rehabbers with the best crews are going to need rules in place to ensure that their contractor experiences are good ones, and that a bad contractor doesn’t risk an entire project.

Given that, I wanted to take a few minutes to summarize some of the methods I have put in place to ensure that I only hire and keep the best, brightest, and most motivated contractors, and to ensure that my contractors stay motivated throughout the project(s):

1. Cover yourself with contracts and paperwork.

This is so important that I have a separate article on this topic…check it out

2. Always check references before you hire a contractor.

Many rehabbers will ask contractors for references, but how many will actually check out those references before hiring the contractor? You don’t necessarily need to interview past clients of the contractor, but at least take a look at the work that was done. For example, if your contractor is a painter or a roofer, it should be fairly easy to obtain a list of addresses the the contractor worked on, and then just drive by the exterior of the house to see the quality of work.

Perhaps the contractor has work currently going on (if he doesn’t, why not?!?!?). Will he allow you to stop by and check out the crew, check out the progress, evaluate the safety precautions the crew is taking, etc?

Worst case, if you have any doubts, you should call previous clients of the contractor. Ask them pointed questions about how well the contractor maintained the schedule, the budget and the overall quality of the work. Lastly, ask the client if s/he would hire the contractor again…the answer to this question will tell you everything you need to know.

3. Never pay ahead of the work that’s been completed.

Many contractors will tell you that they can’t start on your project until you pay them some amount of the total cost upfront. Then, they’ll have you continually pay them throughout the project to ensure that you’ve always paid more than the work that has been completed.

This is backwards! If your contractors ever walk off the job or fail to show up for work, you’ve paid more than the work that’s been completed, and YOU LOSE MONEY. Instead, your contractors should be working ahead of your payments, not the other way around. This way, if the contractor chooses to not show up, he’s done at least some of the work for free and HE LOSES MONEY.

If the contractor insists on not taking the risk of you not paying, then offer to pay many installments. For example, in the most extreme case, you can pay the contractor at the end of every day for the work that was completed that day. This ensures that the contractor never has to worry about losing more than a day’s pay to an unscrupulous investor who doesn’t pay, and you can ensure that if the contractor ever doesn’t show up, you’re not out any money.

Certainly, there will be cases where the materials are a considerable portion of the total contractor cost (such as getting a roof replaced or sheet-rocking an entire house), in which the contractor will rightly want some payment upfront to ensure he not buying a bunch of materials he never gets paid for. In these cases, you can agree to pay for the materials upfront, but also ensure that the contractor delivers the materials to the property the same day. Again, this will protect both sides.

4. Get a schedule from your contractor before the work starts.

Whether you write the schedule or your contractor writes the schedule, it’s important to ensure that there is an agreed-upon schedule for any project, no matter how small the project might be. There are a couple reasons for this:

  • It keeps the contractor accountable for getting the finished product completed by the finish date. If you have no idea what 50% looks like, how do you know if the contractor has completed 50% of the project by half-way through the schedule.
  • It ensures that you don’t pay ahead of the work completed. Again, if you don’t have a schedule, how do you know if it’s time to be paying the 50% completed installment?
  • It helps ensure that other contractors stay on schedule and that your project stays on schedule. If your sheetrock guy decides that next-week is better for him to finish than this week, how does that impact your overall schedule? Is this going to impact your painter, your flooring guy, your trim guy, etc? It will likely impact the entire project!

5. Make sure you visit the job site at least a couple times a day, and make sure you “drop in” by surprise.

Best case, you or someone on your management team will be at the property any time a contractor is working there. Unfortunately, this isn’t always realistic, and if you have a trusted crew that you’ve worked with in the past, this may not even be necessary. But, if you’re not going to be at the property full-time, make sure you at least check in a couple times a day — on surprise visits.

Too many investors will let their contractors know exactly when they’ll be at the property. For example, they’ll meet the cabinet guy at 9am to let him in the house, and then say, “I’ll be back at 2pm to check up and see if you need anything.” While this won’t matter with good contractors, if you have a bad one, you’ve now given him the information he needs to slack off for the next couple hours or go finish up another job down the street.

I know this sounds far-fetched, but there are LOTS of contractors who overbook their schedules, and will use any opportunity they can to make it seem like they’re in two places at once. The really bad ones will actually be making extra money by doing this, not just screwing up schedules. You want to be sure that your contractors are working when you’re not around, and that they’re working on YOUR project.

To avoid problems, don’t tell your contractors when you’ll be visiting the site, and don’t be consistent. For example, if you always stop by at lunch and after work, take a late lunch on occasion to keep your contractors on their toes. Or send a friend over to check on progress every once in a while if you can’t do it yourself.

6. At the first sign of trouble, don’t hesitate to get rid of a contractor. While it may be a pain in the ass to have to find a replacement mid-project, it’s much worse to have to deal with a bad contractor for any amount of time.

The biggest mistake I see rehabbers make is not getting rid of bad contractors quickly enough. They will rationalize that the contractor will get better (trust me, contractors don’t change), or that the project is almost over and they’ll just not hire the contractor in the future.

In most cases, if the contractor is not getting the job done early-on in the project, things will just get worse (not better!) as the project wears on. Plus, a bad contractor will not only hurt his part of the project, but will also affect the morale of the rest of the crew, who are just trying to finish up so they can move onto the next job.

Let me leave it at this: If you have any doubts about a contractor, go find another one. There are plenty of great contractors out there, and it’s not worth your frustrations not to have them.

11 thoughts on “6 Rules For Managing Your Contractors”

  1. This article sure brings back some things I wanted to forget. On our last rehab, I was the general or the contractor on most of the projects. My son did the framing, sheet rock, doors and cabinets. In other words we did everything; except the floors. My wife was really being unreasonable about this time because of the wrecked schedule and budget overruns and I was tired of fighting the project and her too. So, we decided to let her see what she could do. To make a ver long story short, he kept complaining about some work my son had done to level a closed in carport addition up to the same level as the house slab. The contractor actually did a decent job in this area. But, he bothched the job by the front door, and in the hallway where it appeared to me to be an easier place than the addition. He told my wife what to do so SHE could fix it. And she had so many problems trying to keep him on the job she was glad to pay him and be done with him. Hopefully it was a bad enough experience for her to leave me alone during the rehab and stick to what she does best; which is desighning, painting and staging. And very well I will add.

  2. This post really makes me appreciate the ground work I did in finding good contractors in the beginning of my career. I check up on them once per week at most now and usually just to BS with them for a little bit.

    Ive been able to do this by setting up a deadline incentive program. They get $100 per day that they complete ahead of schedule on major (10k+) rehabs and I get $50 for each day late on their agreed upon deadline. The details and income earned is then up to them and Im free to buy more projects for them to flip.
    Having a contractor who understand that concept is good as well. I let them know up front that Im running a streamlined operation, which means “the less time I have to spend out here babysitting, the quicker Im able to line up your next big project thatll keep money in your pocket…”

    1. Jacob – I completely agree with you here. In fact, since Ive written this post, were in the same boat; in addition to our full-time project manager, we now have several teams of trusted contractors who have worked together on dozens of projects (we rehab for other investors as well as our own projects), and for the most part, they can run on auto-pilot. They know that there are always more projects coming up, so the faster they complete their current work, the sooner theyll get another project to work on, and were to the point where a typical full cosmetic remodel (all flooring, cabinets, finish plumbing/electrical, paint, etc) can be done in about 10 days and full gut rehab (down to the studs) can be done in less than 3 weeks. The best part is that all our contractors know each other, so they can coordinate among themselves when simultaneous work is being done.

  3. 10 days and 3 weeks! Thats incredible. Sounds like your holding out some tactics from your avid readers ;-). How are you able to get things done so quickly and have you found that it generally costs you more money to do so?
    Were now doing a standard 40+ year upgrade rehab (15k+) in about 6 weeks. Im not sure how wed get things done any faster without major management overhead and additional costs that wouldnt seem to justify the saved expense from carrying costs/loss of the use of investment capital.

    1. Hey Jacob –

      We have two “secrets” to how we get our rehabs done so quickly (not secrets at all, but what we found works the best):

      1. Our main crew are professional painters who can also do siding, sheetrock and basic carpentry repairs. Weve found that the most time intensive parts of rehabbing are getting the interior and exterior ready for paint (repairing siding/trim/fascia, caulking, fixing sheetrock, prepping walls, etc) and the actual painting. I see rehabbers who will spend two weeks just getting through paint prep and painting, whereas our crew will have 10 guys on-site full-time and can knock out all the prep and paint in 3-4 days. This is the advantage to using professional painters as opposed to a handyman who will try to do all the work himself or a GC who will have separate contractors for the interior prep, exterior prep, carpentry and paint.

      2. Our main painting crew has a network of good contractors (good contractors always associate with other good contractors), so in addition to do all the interior/exterior repairs and paint, they also sub-out all the demo, basic carpentry (doors, trim, etc), finish electrical (hanging lights), finish plumbing (sinks, faucets, water heaters), basic flooring (carpet and vinyl), installing appliances, etc. In other words 75% of the work on any given job is completed by one crew, and they take care of all the coordination and scheduling overhead. In fact, they have guys on-site from day 1 (doing demo) until the very last day (doing appliance installation, touch-up and punch work), so theres always someone around who can touch up paint, hang an extra light, do some basic carpentry, etc. While I have a full-time project manager, during most of the rehab, hes just standing back while this main crew does most of the work. He then schedules the specialists — the roofer, HVAC company, cabinet installer, hardwood guy, etc — around the main crew. And because our specialists have worked with our main crew on probably 50 rehabs, they know each other and are comfortable coordinating amongst themselves. This is how my project manager can run 5-7 projects simultaneously.

  4. Interesting.

    You said youre professional painters run a crew of 10 guys! Thats nuts. Ive never heard of a crew that large. What do they do with all of that man power during the off season or down time? I couldnt imagine a 10 man crew running through my projects, but Im sure it would definitely get things done a lot faster. How did you find that crew? Are they advertised as professional painting co?

    I looked back at my last 8 projects and found that I was averaging around 6 months per flip. Two of those projects had a buyer fall through and I had to wait 1 month to evict on 2 more, but Id estimate that our rehabs take around 8 weeks on average for a standards sized flip (12-17k). I generally using a GC with 1-2 helpers throughout. I sub out electrical, roofs, hvac, etc (I use the same guys over and over so its a quick delegation job). If I could cut our rehab time in half Id be able to flip around 6 more houses per year because of the added use of resources (cash & man power). These secrets are great. Do you have any more tips on getting rehabs done at sonic speed?

    Also, how have you figured out how to compensate your project manager? How do you ensure he is interested in keeping costs down for your company? I still havent figured that puzzle out yet. I was thinking of some kind of profit sharing program and strict rules/systems around standard practices (using coupons, getting multiple bids, Never paying the amount of the original bid, etc), but idk…

  5. I ran your 10 man crew idea by my current contractor and he seems to think it would cost quite a bit more money to operate a crew that size.
    It seems to me from a logical standpoint, that any additional costs would come in the form of managing all of the workers, but I wouldnt think it would be too bad when you consider how much faster things get done.
    Do you find that this type of speedy construction costs you more to complete a job or less and where are those costs either saved or spent?

    1. Jacob –

      Then key isnt to put together a 10-man crew, but to find a larger crew that already works together. My crew is no more expensive than a smaller crew because theyre able to make up the profits by increased volume — Ill give them simultaneous projects and they can move from one group of projects to the next. Also, the crew has a varied set of skills so the project moves along especially quickly. For example, the guys hanging lights are working hand-in-hand with the guy painting the ceiling, so the painting and finish lighting often completes the same day. Likewise with cabinets and plumbing, flooring and trim, etc.

  6. Hello, Im looking for answer, This is my situation: My husband and I decided to build a guess house in our backyard, (this is just an addition to our house, in which we are leaving) on top of two cars garage. Since our garage was an old construction, theyve demolished it all and started building from the bottom the entire proyect. The whole proyect its been frustrating, starting from dealing with the architect and ending now with our contractor. Its been horrible… The architect submitted the plans to the city 3 months after he was supposed to do so… and the contractor started to do demolitions of our garage and driveway way before he had any permit from the city… just keep in mind we signed contract with this two guys last year on March, we are now on mid January and still we have no driveway and in terms of building is just looking a open wood structure … this is VERY FRUSTATING! ( since we are a young couple with no experience on dealing with this, they have taken adventage of our position ) the contractor more because the arquitect is off the hook now. We did sign a contract with contractor, but there are not deadlines anywhere. What should I do to make him finish this proyect ASAP ? Help please

    1. Julika – Unfortunately, if your contract with the contractor isnt specific about deadlines and penalties, you could be in a difficult spot. I would suggest finding a good attorney who can review your contract and help you determine how best to get the contractor to complete the job or to fire him and find another contractor. Sorry I dont have a better suggestion.

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